The following excerpt is from “Liberalism, Old Style” by Milton Friedman, published in the 1955 Collier’s Year Book, pp. 360-363. New York: P.F. Collier & Son, 1955. Reprinted in The Indispensable Milton Friedman, Essays on Politics and Economics, edited by Lanny Ebenstein, pp. 11-24. Washington, D. C.: Regnery Publishing, 2012 (see here).
Liberalism, as it developed in the seventeenth and eighteenth centuries and flowered in the nineteenth, puts major emphasis on the freedom of individuals to control their own destinies. Individualism is its creed; collectivism and tyranny its enemy. The state exists to protect individuals from coercion by other individuals or groups and to widen the range within which individuals can exercise their freedom; it is purely instrumental and has no significance in and of itself. Society is a collection of individuals and the whole is no greater than the sum of its parts. The ultimate values are the values of the individuals who form the society; there are no super-individual values or ends. Nations may be convenient administrative units; nationalism is an alien creed.
In politics, liberalism expressed itself as a reaction against authoritarian regimes. Liberals favored limiting the rights of hereditary rulers, establishing democratic parliamentary institutions, extending the franchise, and guaranteeing civil rights. They favored such measures both for their own sake, as a direct expression of essential political freedoms, and as a means of facilitating the adoption of liberal economic measures.
In economic policy, liberalism expressed itself as a reaction against government intervention in economic affairs. Liberals favored free competition at home and free trade among nations. They regarded the organization of economic activity through free private enterprise operating in a competitive market as a direct expression of essential economic freedoms and as important also in facilitating the preservation of political liberty. They regarded free trade among nations as a means of eliminating conflicts that might otherwise produce war. Just as within a country, individuals following their own interests under the pressures of competition indirectly promote the interests of the whole; so, between countries, individuals following their own interests under conditions of free trade, indirectly promote the interests of the world as a whole. By providing free access to goods, services, and resources on the same terms to all, free trade would knit the world into a single economic community.
Principles for social action must be based on both ultimate values and a conception of the nature of man and the world. Liberalism takes freedom of the individual—really, of the family—as its ultimate value. It conceives of man as a responsible individual who is egocentric, in the sense not of being selfish or self-centered but rather of placing greater reliance on his own values than on those of his neighbors. It takes as the major problem of modern society the achievement of liberty and individual responsibility in a world that requires the co-ordination of many of millions of people in production to make full use of modern knowledge and technology. The challenge is to reconcile individual freedom with widespread interdependence. The liberal answer derives from the elementary—yet even today little understood— proposition that both sides to an economic transaction can benefit from it; that a gain to a purchaser need not be at the expense of a loss to the seller. If the transaction is voluntary and informed, both sides benefit; the buyer gets something he values more than whatever he gives up, and so does the seller. In consequence, voluntary exchange is a way to get cooperation among individuals without coercion. The reliance on voluntary exchange, which means on a free market mechanism, is thus central to the liberal creed.